State Firms Told to Leave Real Estate

The Chinese state-owned enterprises’ frequent engagement in the real estate pushed the sales price of land higher and higher. Now the Chinese government plans to put an end to this.

The Chinese government has ordered all central government-controlled enterprises whose core business is not real estate to pull out of property development.

It is the latest national initiative to try and rein in galloping real estate prices across the nation.

The announcement was made at a press conference in Beijing on March 18, 2010 called by the State-owned Assets Supervision and Administration Commission.

The directive followed mounting industry complaints that private developers are being squeezed out of land auctions and public concerns over real estate prices.

Seventy-eight companies supervised by the commission have already been told to withdraw from the industry after their ongoing projects are completed because real estate isn’t their core business.

“These government-backed conglomerates are flush with cash and always enjoy easier access to credit than their privately owned counterparts due to their long-established and strong relationships with commercial banks,” said Cai Weiming, a veteran real estate analyst.

“Thus they can usually afford higher prices for land parcels.”

While most private companies won’t do a project if its profit margin is less than 20 percent, it is not unusual for central government-controlled enterprises to take one on even if only a 10-percent profit is likely, according to Cai.

Relevant companies owned by the central government should speed up plans to quit real estate operations, the commission said.

Only 16 of the 127 companies supervised by the commission are designated property developers.

Central government-owned companies have long been criticized for bidding up land prices to record levels, leaving smaller players unable to compete.

However, while this latest effort has again indicated the central government’s determination to cool down the real estate market, some industry experts remain skeptical.省略.

“The real reason behind high land prices is insufficient supply, or an imbalance between supply and demand,” Gu claimed.

Premier Wen Jiabao repeated a pledge in his annual report to lawmakers last week to crack down on real estate speculation after urban property prices in China jumped 10.7 percent in February, the fastest in 23 months.

Property sales by central government-owned firms hit 220.9 billion yuan (USD 32.36 billion) in value and 28.07 million square meters in volume last year, accounting for 5 percent and 3 percent of the country’s total, the commission said.